Responsibility Accounting and Profitability of Listed

International Journal of Accounting, Finance and Risk Management 2020; 5(2): 101-117

http://www.sciencepublishinggroup.com/j/ijafrm

doi: 10.11648/j.ijafrm.20200502.15

ISSN: 2578-9368 (Print); ISSN: 2578-9376 (Online)

Responsibility Accounting and Profitability of Listed Companies in Nigeria

Adegbie Folajimi Festus, Urewa Ochai-Adejoh, Owolabi Babatunde Ayodeji

Department of Accounting, School of Management Sciences, Babcock University, Ilishan-Remo, Ogun State, Nigeria

Email address:

To cite this article: Adegbie Folajimi Festus, Urewa Ochai-Adejoh, Owolabi Babatunde Ayodeji. Responsibility Accounting and Profitability of Listed

Companies in Nigeria. International Journal of Accounting, Finance and Risk Management. Vol. 5, No. 2, 2020, pp. 101-117.

doi: 10.11648/j.ijafrm.20200502.15

Received: February 24, 2020; Accepted: April 13, 2020; Published: May 28, 2020

Abstract: Structuring activities into responsibility centers and optimization of resource is a priority in meeting investors’

performance and profitability expectations in both small and large organizations. Studies have shown that to meet these

expectations, adequate performance evaluation and reward system are managers’ challenges. This study investigated the effect of

responsibility accounting on profitability of listed companies in Nigeria. Ex-post facto research design was adopted. The

population was 173 quoted companies on the Nigerian Stock Exchange as at 31st December 2016. Ten companies were selected

using stratified and purposive sampling technique. Data were extracted from published financial statements of sampled companies;

validity and reliability of the data were premised on the scrutiny of the external auditors. Descriptive and inferential (Panel data

regression) statistics were used to analyze the data. The study revealed that profitability measured by NPBT, of listed companies

in Nigeria is significantly influenced by responsibility accounting (RA), F-Stat=114.56, AdjR2=.0.6964, p=0.000. There is no

significant difference in the result of NPBT with and without the control variable of firm size. The result with control variables

revealed F-Stat=87.63; AdjR2=0.7242; P=0.000. The study also revealed that RA had a positive significant relationship with EPS

with control variables of firm size, F-Stat=6.56, AdjR2=0.1442; P=0.000. However, without control variables, no significant

effect of responsibility accounting on EPS was observed as shown in the following result: F-Stat=0.45, AdjR2=-0.0112, p=0.64.

Furthermore, the study revealed that profitability measured by ROA exhibited an insignificant relationship with RA given the

following results, AdjR2=0.0089; P=0.000. RA with control variables of firm size, insignificantly affected ROA while Firm Size

exerted significant positive effect on ROA (as the size of the firm changes by a unit, ROA increased by 23.9% as seen in model 3b)

given the following result: AdjR2=0.0399; P=0.782. This study concluded that responsibility accounting had an influence on

profitability of listed companies in Nigeria. The study recommended that since profitability is the whole essence of responsibility

accounting, managers should ensure delegation of task with responsibilities clearly spelt out, regular appraisal process, achievable

project budgeting, instituting cross functional teams and efficient reward systems put in place towards achieving the corporate

objective that would influence better profitability.

Keywords: Activity Centers, Decentralization, Evaluations, Profitability, Responsibility Accounting

1. Introduction

1.1. Background to the Study

Umobong [52] averred that the primary motive of business

operations is to have returns and economic value from

investments, and as such only profit generating capability

activities can guarantee a continuous going concern for

companies. Therefore, the existence and survival of

businesses largely depend on the achievement of profitability

objective of the organization. Hanini [24] posited that

business failures are common factors in the real business

cycle if proper functioning and co-ordinations are not

achievable among the administrative subunits or

responsibility centers. In that case, the individual managers

are directly held responsible for their actions. Generally,

attaining organizational objectives requires a proper

functioning structure within the establishment. Hanini [24]

that competent and skilled managers are to delegate

authorities and responsibilities based on the structure and size

102 Adegbie Folajimi Festus et al.: Responsibility Accounting and Profitability of Listed Companies in Nigeria

of such establishment. Abebe and Abera [1]; Abo and

Mohammed [2] opined that profitability as a reflection of

productivity is a good measure and a tested indicator to

ascertain the realization of the set objective of the

organization.

Daloof [14] stated that from the global perspective,

profitability objective is considered as one of the primary

goals of any business venture. This is because without

profitability objective being met, organizations especially in

a structured and decentralized system, cannot survive. Thus,

the going concern is no more guaranteed. Hence, measuring

the current and past profitability performance objective and

also projecting future profitability is very critical to the

company's continuous existence. Profitability has been given

considerable importance in finance and accounting literature.

Hifza [26]; Abebe and Abera [1] said profitability is one of

the most important objectives of financial management.

Since one goal of financial management is to maximize the

owners' wealth, then profitability is a very important

determinant of performance. Bygrave, Hay and Reynolds [11]

explained that profitability has the ability to provide a clear

picture and guiding road map of the financial expectations of

business actions and operational activities before they are

executed Bygrave, Hay and Reynolds [11] opined that

profitability, as one of the control measures has the

motivating behavioral implications on managers and their

subordinates such that specific goals are imposed, where

there are measurements for systems, the delegation of duties,

goal orientation, participation, pressure, and financial

performance. Furthermore, more rewards for attaining goals

are few and punishments are readily available for failures.

Karasioghu and Gokturk [29] opined that responsibility

accounting has generated lots of unresolved debate in

literature as to how it affects profitability or corporate

performance. Responsibility accounting implies a

management control system established on the principles of

delegating and locating responsibility at the divisional levels,

yet performance or profitability in some companies still

suffers some setbacks. In other words, responsibility

accounting is an organizational structure under which

managers and those saddled with responsibilities are

empowered and authorized by the organization to take

decisions and responsibility for each activity that ensues

within a specific job function of the organization. This means

that under this arrangement, managers are held responsible

for the actions of segments otherwise called the divisions, or

departments, or branches. But the question, in spite of the

various applications of responsibility accounting is, has

profitability increased or improved in Nigeria? This is one of

the problems this study seeks to find out at the end of the

investigation”. Owino [43] said responsibility accounting

involves assessing controllable and uncontrollable costs or

revenues traceable to individual managers. Owino [43]

argued that however, in real life, tracing and determining

these costs and revenues are dynamic and complex, but well-

structured responsibility accounting system is important

Owino [43] argued that to reduce the problem of managing

the large companies, responsibility accounting is one of the

best tools of cost management used in the case of

decentralization or divisionalization of activities.

Performance measurement is considered as a management

control system because economic planning and effective

control and decision-making require that each unit's function

is evaluated. Ideally, every business establishment is made up

of people and resources to accomplish a certain economic

goal, so, it is the firms planning that determines how the

elements work together to achieve the overall goal of the

firm”. Mojgan [35] stated that the lines of authority should be

fully defined before the responsibility system is implemented.

When the powers and responsibilities are clearly determined

and defined, there will appear a level of management

structure and each will enjoy a sphere of responsibility within

which individuals can make their own decision.

Chartered Institute of Management Accountant CIMA [12]

defined responsibility accounting as a system of accounting

that segregates revenue and costs into areas of personal

responsibility in order to assess the performance attained by

persons to whom authority has been assigned. Responsibility

accounting can also be referred to as activity accounting,

especially in a decentralized operational setup. It is used to

measure, evaluate and monitor the decentralization process of

organizations. Responsibility accounting aims to provide

some accounting reports. This enables every manager to be

aware of all the items, which are within his area of delegation

and authority. CIMA [12] stated further that as a system of

accounting, it distinguishes between controllable and

uncontrollable cost. Gray [22] stated that with Responsibility

accounting, it is possible to identify or recognize decision

centers within an organization for the purpose of tracing costs

to the individual managers who are charged with the

responsibility of making decisions about costs and revenue in

an organization. Consequently, this study investigated the

effect of responsibility accounting (Independent Variable) on

Profitability (Dependent variable) of the listed companies in

Nigeria. The study expected that the dependent variable and

its proxies would be positively affected by the explanatory

variables of the cost of sales (COS), and operating (OPC).

1.2. Statement of the Problem

Kishore and Ghosh [31] stated that companies face

difficulties in meeting their profitability goal because the

managers' performance is not evaluated. If the performances

of managers are not evaluated, it will be hard to determine

when the profitability expectation is achieved, which is part

of the essences of responsibility accounting. The study of

Derbali and Jamel [13] posited that business failure is a

common factor if proper functioning and evaluation are not

properly handled among the organizational subunits or

responsibility centers where the individual managers are

directly held responsible for their actions. Commenting on

profitability Adegbie, Olusanjo and Olaoye, [3]; Zimmerman

[57] opined that the evidence of efficient responsibility

accounting is measurable by the level of profit being

generated. Makori and Jagongo [34]; Owolabi and Obida

International Journal of Accounting, Finance and Risk Management 2020; 5(2): 101-117 103

[44]; Padachi [45] argued that Profitability is the critical

essence of business, according to. This is reflected in the

dwindling profit of the organizations, as an indicator of

profitability performance, showing the managers inability to

create wealth for the owners and meeting the expectation of

equity investors. Although, managers could be held

responsible for the responsibilities under their control,

however, the managers do not have direct control over

uncontrollable costs and over the shareholders' wealth. Yet,

their action influences the drivers of the shareholders' wealth

creation. Consequently, there is a need to identify measures

of performance that are related to shareholders, like Net

Profit before Tax (NPBT). Bad performance of managers

(and their subordinates) of the listed companies may have

contributed to the inability of the firms to optimize the

resources towards making profit for the shareholders,

corporate objective attainment and ensuring that profitability

objective is achieved. Furthermore, Ocansey and Enahoro

[42] that the issue of controllability principle in responsibility

accounting is controversial and continues to be the subject of

scholarly debate in accounting and control literature.

Deloof [14]; Diamond [15] opined that the debate on the

relationship between responsibility accounting and

profitability in literature is ongoing. While findings from

some studies claim that responsibility accounting is

negatively related with profitability, others stress that it is

positively related. Padachi [45] revealed that responsibility

accounting had a positive relationship with profitability,

while Friebel and Raith [20] showed a negative relationship.

Friebel and Raith [20] stated that one of the problems facing

organizations in Nigeria and elsewhere is the issue of scarcity

of resources. As such, appropriate utilization and allocation

of resources and delegation of duties in a decentralized

organization, could lead to maximizing the resources and at

the same time minimize the cost of production, which means

production efficiency will ultimately be maximized and also

profitability objective will be attained and the core values of

the company and that of other stakeholders would be

maintained through profitability.

The application of responsibility accounting cannot only

strengthen internal control but also improve the production

efficiency of enterprises. The correct application of

responsibility accounting provides good performance and

thereafter affects profitability. Previous studies in Nigeria

provided evidence of lack of clarity of the degree of

implementation of accounting responsibility to increase the

operational efficiency and development of performance.

Consequently, this study investigated managers and other

employee's performance in terms of responsibility accounting

in the delegation, economic planning, and responsibility

centers resource utilization, employing responsibility

accounting proxies of (cost of sales, operating costs, and

revenue) as they relate to profitability. For control purposes,

responsibility centers are generally categorized into cost

centers, investment centers, and revenues centers. This study

measured individual managers managing the responsibility

accounting centers of Cost centers with (Cost of sales of the

center-COS), the investment center with (Operating costs-

OPC) and revenue center. Therefore, the researcher

investigated the impact of responsibility accounting on

profitability in the listed companies on the floor of the

Nigerian Stock Exchange for the period selected.

1.3. Objective of the Study

The objective of this study was to examine the effect of

responsibility accounting on profitability in listed companies

in Nigeria.

The specific objectives of the study were to:

1. Ascertain the effect of responsibility accounting on net

profit before tax in listed companies Nigeria;

2. Assess the effect of responsibility accounting on

earnings per share in listed companies in Nigeria

3. Determine the effect of responsibility accounting on

return on assets in listed companies in Nigeria;

4. Evaluate the controlling effect of firm size on effect of

responsibility accounting on net profit before tax, on

earnings per share and on return on assets in listed

companies in Nigeria.

1.4. Hypotheses of the Study

The following hypotheses stated in null form were tested

in this study:

H01: Responsibility accounting has no significant effect on

net profit before taxof listed companies in Nigeria.


earnings per share of listed companies in Nigeria.


return on assets of listed companies in Nigeria.

H04: Firm size does not have controlling effect on the

effect of responsibility accounting on net profit before tax, on

earnings per share and on return on assets of listed companies

in Nigeria

2. Literature Review

2.1. Conceptual Review.

2.1.1. Responsibility Accounting

The concept of responsibility accounting is considered as

an accounting system that collects, summarizes, and reports

accounting data relating to the responsibility of managers. It

provides information to evaluate each manager on revenue

and expenditure over which that manager has control and

authority, such that line of responsibilities could be fully

defined. Responsibility accounting considers the ability to

separate clearly the controllable and uncontrollable items.

Responsibility accounting has been defined in various

ways. Abo and Mohamad [2]; Owino [43] defined

responsibility accounting as an accounting method that

gathers and prepares periodic reports about the information

regarding the costs and/or the revenues of every position of

responsibility in an organization to enable managers to plan

and control the performance of these positions of

responsibility. Similarly Zimmerman [57] stated that the


responsibility accounting system is part of the performance

evaluation system used to measure the operating results of a

responsibility center. Therefore, responsibility accounting

dictates that the performance measurement system measures

the performance that results from the decision rights assigned

to the responsibility center.

Magablih [33] stated that responsibility accounting then

dictates that the performance measurement system measures

the performance that results from the decision rights assigned

to the responsibility center. Being held responsible for

financial performance does not mean that the manager is

penalized if actual results do not measure up to the budget

goals. However, the manager should take the initiative to

correct any unfavorable discrepancies, should understand the

source of significant favorable or unfavorable discrepancies

and should be prepared to explain the reasons for

discrepancies to higher management.. An effective

responsibility accounting is a system that measures the plans,

budget, actions and actual results of each responsibility

center Horngren [27] was of the opinion that a responsibility

center can be structured to promote better alignment of

individual and company goals.

Similarly Fowzia [19]; Yang Modell [53] stated that

responsibility accounting is a management control system

designed to make various responsibility managers

accountable based on the principles of delegation and the

location of their responsibility. Authority and responsibility is

based on responsibility centers. Fowzia [19]; Yang and

Modell [53]. Further stated that as a way of controlling

operations in an organization, someone must be held

responsible for each cost or else no one will be responsible

and the cost will inevitably grow out of control Horngren,

[27] furthermore stated that responsibility accounting or

profitability accounting or activity accounting (which means

the same thing) is a system that recognizes various decisions

or responsibility centers throughout the organization and

traces costs (and revenue, assets and liabilities) to the

individual managers who are primarily responsible for

making decisions about the costs, revenue, assets and

liabilities in question. More so, responsibility accounting is a

method of accumulating and reporting both budgeted and

actual costs, by divisional managers responsible for them. On

this system, business activities are identified with managers

rather than products in order to make for effective control.

2.1.2. Proxies of Responsibility Accounting

(i). Cost of Sales

Cost of sales as one of the measures of responsibility

accounting is the cost of making the products sold in a period.

The expenses included in ‘cost of sales’ differs according to

the activities or type of industry in which the entity operates.

In a retailing business, the cost of sales might be just the

purchase cost of the goods that have been sold while in a

manufacturing business, the cost of sales might be the cost of

producing the goods sold during the period, including raw

materials, components, labor and other expenses incurred in

production. Nibedita [39] opined that sometimes the cost of

manufactured goods transferred to cost of sales is adjusted to

reflect profit or loss arising from the manufacturer. The profit

(or loss) on manufacture is ascertained on the basis of

opportunity cost principle, i.e. is by reference to what the

company would have paid for identical goods if it were

purchased instead of manufacturing them. If such imputed

total purchase value exceeds the cost of manufacture then a

gross profit on manufacture would result. A loss of

manufacture will occur if the cost of manufacture exceeds the

imputed purchase value.

Cost Centre or Expense Centre: Derbali and Jamel [13]

averred the cost of sales is used in this study to measure cost

centers or expense centers. In measuring responsibility

accounting, an expense center is a responsibility center in

which inputs, but not outputs, are measured in monetary

terms. Responsibility accounting is based on financial

information relating to inputs (costs) and outputs (revenues).

In an expense center of responsibility, the accounting system

records only the cost incurred by the center, but the revenues

earned (outputs) are excluded. An expense center measures

financial performance in terms of cost incurred by it. In other

words, the performance measured in an expense center is the

efficiency of operation in that center in terms of the number

of inputs used in producing some given output. The modus

operandi is to compare actual inputs to some predetermined

level that represents efficient utilization. The variance

between the actual and budget standard would be indicative

of the efficiency of the division.

Mojgan [35]; Adegbie, Olusanjo, and Olaoye [3] explained

that in measuring the cost of sales as an absolute figure from

the financials of the companies and the study of. Following

these studies, the researchers measures Cost of sales=log of

the cost of sales of the companies forming the units of

sampling of the study.

(ii). Operational Costs

Direct Costs: Akeju [4]. Explain that these are costs that

vary directly with the level of production. That is, they are

costs that can be traced to having been incurred in

manufacturing an item. They are also referred to as prime

cost. Furthermore, Akeju [4] opined that direct cost could be

direct labour cost, comprising wages paid to the workers that

are wholly and exclusively working in the production line of

the manufacturing companies or direct expenses which are

other costs that are directly related to the production process.

Indirect Costs: These are costs that cannot be easily traced

to the item being manufactured i.e. they are costs which do

not vary directly with the cost of production. They are also

referred to as overheads.

Investment Centers: The study measures the investment

center considering the operational cost involved in the

investment centers. Ideally, a center in which assets

employed are also measured besides the measurement of

inputs and outputs is called an investment center. Inputs are

accounted for in terms of costs, outputs are calculated on

investment center. Inputs are accounted for in terms of costs,

outputs are accounted for in terms of revenues and assets

employed in terms of values. It is the broadest measurement,


in the sense that the performance is measured not only in

terms of profits but also in terms of assets employed to

generate profits. An investment center differs from a profit

center in that an investment center is evaluated on the basis

of the rate of return earned on the assets invested in the

segment while a profit center is evaluated on the basis of

excess revenue over expenses for the period.

Mojgan [35] investigated the role of responsibility

accounting in organizations. The study measures operating

cost using the absolute figure of the listed firms sampled

Adegbie, Olusanjo, and Olaoye [3]. Study intends to follow

the literature and measures operating costs as used in the

study of, as follows: OPC=log of the total cost (absolute

figure) of the listed companies that would form the sampling

unit of this study.

2.1.3. Profitability

Machdar [32] argued the concept of Profitability could be

termed as the ability to make a profit from all the business

activities of an organization, company, firm, or an enterprise.

It reveals how efficiently the management can make a profit

by using all the resources available in the market. Harward

and Upto [25] postulated that profitability is the ability of a

given investment to earn a return from its use, but that

profitability is not synonymous to the term efficiency, rather

profitability is an index of efficiency to guide management

for greater performance. The study of Hifza [26] opined that

profitability is one of the most important objectives of

financial management since one goal of financial

management is to maximize the owner's wealth and

profitability is a very important determinant of performance.

A business that is not profitable cannot survive. Conversely, a

business that is highly profitable has the ability to reward its

owners with a large return on their investment. Similarly, the

study of Nedles, Powers, and Crosson [38] opined that

profitability is the ability to earn a satisfactory income. They

further asserted that as a goal, profitability competes with

liquidity for managerial attention for the reason that liquidity

assets, although important, are not the best profit producing

resources. Cash, for example, means purchasing power but a

satisfactory profit can be made only if purchasing power is

used to buy profit-producing (and less liquid) assets, such as

inventory and long-term assets.

2.1.4. Net Profit Before Tax

Net profit before tax in this study relates to the profit

available for the company before tax liabilities. The essence

of this variable is to ascertain profit available after

considering all the direct costs, overheads, and other

operating expenses and evaluate the level of competences

and efficiency of managers in managing various investment

centers based on the decentralization policy in companies

implementing responsibility accounting. Zahoor, Huma,

Bader, and Muhammad [43]; Zhai, and Wang [56] opined

that net profit before tax as profitability performance

indicator, should be clearly differentiated between the

performance of the managers and that of the division.

Nawaiseh, Zeidan, Falahat, and Otish [37]; Eliwa [17]

measured Net profit before tax (NPBT) in their studies. This

study adopts from their studies and intends to measure net

profit before tax as NPBT=Log of net profit before tax

(absolute figure) from the financials of the companies to be

used for this study.

2.2. Theoretical Review

This section of the study shows the theoretical assumptions

and foundation used for the study.

2.2.1. Agency Theory

The concept of agency theory was postulated by Berle and

Means [9] who argued that due to a continuous dilution of

equity ownership of large corporations, ownership and

control become more separated. Jensen [28] opined that this

situation gives professional managers an opportunity to

pursue their interests instead of that of shareholders. That the

issue of agency theory revolves around the subject matter of

agency problems and its possible solutions.

The responsibility of running and managing the company

will be with the managers on behalf of the shareholders. In

any business contract, there is the possibility that conflict

may arise especially when the owner is different from the day

to day running and management of the company. The conflict

could come in various ways: Conflict of interests, payment

terms disagreements, dividend policy issues and many more.

The Agency theory posits that there is a relationship between

the principal (shareholders) and the agent of the principal

(company's managers). This suggests that the firm can be

viewed as a nexus of contracts (loosely defined) between

resources holders. Panda and Leepsa, [47]. stated that An

agency relationship arises whenever one or more individuals,

called principal, hired one or more other individuals, called

agents, to perform some services and then delegate decision-

making authority to the agents. This study investigates the

effects of responsibility accounting on the profitability of the

listed companies in Nigeria, relating to the investors in this

case, as the principal and the managers other employees as

the agents. The investors voluntarily gave power to the

managers to manage the resources on behalf of the investors.

The idea of agency theory in terms of interests, separation of

ownership from control, different kinds of information

asymmetry and moral hazards, managing of resources and

ownership control and managerial function is, therefore,

relevant and related this study.

2.2.2. Profitability Theory

Hifza [26] averred that profitability was said to have been

developed and used by American Economist, Francis Walker

in the year 1900. Profitability studies classify measures and

assess the performance of the firm in terms of the profits it

earns with regards to the shareholders' investment or capital

employed in the business... further explained that most

investors only invest in the returns and the profit that the

investment yields, therefore profitability could be used as a

measure of the success of an investment. Furthermore,

profitability is the business’ ability to create earnings in


relation to its expenses and other related costs of the business

incurred during the relevant period. Therefore, the ability of a

company to continue to operate and be in business largely

depends on its ability to generate profit and continue to exist.

Profitability objective is termed as one of the greatest essence

of business venture. This study expects that responsibility

accounting affects profitability positively. It then suggests

that profitability is a performance measure of responsibility

accounting. Therefore this study is hanging on the fact that

profitability is important and associated with this study.

2.2.3. Economic Efficiency Theory

Stilwell [51] stated that the Economic efficiency theory

was one of the theories postulated by the noneconomic

theorists. However, the theory was said to have been

developed and brought into literature by. The theory states

that companies should achieve their output at the lowest

possible cost per unit produced. According to this theory,

optimal production can be achieved by economics of scale.

Zerbe [55]; Said [50] of both stated that therefore, in the

short run, maximum operational efficiency is attained at the

level of output at which all accessible economics of scale

takes advantage of such efficiency. In the long run, lifting the

capacity of an existing system can increase the optimal level

of production efficiency. The underlying economic

performance of a company is measured basically by the

efficient utilization of the resources at its disposal in other to

attain profitability objectives of the establishment. This

theory is deemed relevant and important to this study because

an economically efficient application of the resources of the

managers reflects how responsibility accounting affects

profitability [55, 50].

2.2.4. Accountability Theory

Diamond (1984); Dow and Gorton (1997) averred that

some scholars in their research work find that a more liquid

market leads to better monitoring of managers as in. Agency

theory states the importance of accountability as required

from the managers by shareholders. The shareholders expect

proper accountability of stewardship of their investment

entrusted in the hands of the managers. Therefore, this theory

is very relevant to the study as accountability is important in

the operations of the firm by the managers who are to be

evaluated and held accountable based on the performance of

their responsibility centers. The managers and their

subordinates are accountable to the shareholders and other

stakeholders based on the delegations of responsibilities,

duties and various centers resources under their control.

Therefore accountability theory is considered important and

relevant to this study [15, 16].

2.3. Empirical Review

Gharaibeh [21] conducted a research investigating the

extent of the application of accounting responsibility and its

impact on profitability and operational efficiency in the

Jordanian industrial corporations companies. The study

employed descriptive statistics and regression analysis. The

study found that the organizational structure of Jordanian

industrial public shareholding companies was divided into

responsibility centers with a high degree of application, but

there was no relationship between centers and profitability

ratios and proportions operational efficiency The authorized

managers of responsibility centers with powers and the

existence of incentives are linked to the results of

responsibility centers and they linked to rates of profitability.

The study recommended increasing the attention to divide the

organizational structure to responsibility centers and identify

the goals which needed to be achieved by each center.

Kingsley, Endurance, Sunny, and Ozele, [30] studied

responsibility accounting issues and the effect of transfer

pricing policy on the Nigerian economy. The study made a

detailed analysis on transfer pricing issues and found that

several activities of handling, planning and controlling were

engaged in multinational firms in Nigeria by reducing the

burden of corporate tax where responsibility accounting tool

is used for decentralization. Patel [48]. made an investigation

on the application and implementation of responsibility

accounting. The study concluded and found that

responsibility accounting was used as a good control system

and performance evaluation tool in large companies. The

study also found that the process of responsibility accounting

had two parts: Standard costing and budgeting. The size of

the organization forms the basis of implementing

responsibility accounting. Large scale companies have

benefited by using responsibility accounting systems as

compared to small scale companies where each departmental

manager is held responsible for his divisional performance.

Furthermore, Alshomaly [8]. studied the relationship

between performance and adoption of the responsibility

accounting system in the Jordanian medical sector. The study

applied descriptive statistics in analyzing the data obtained

from the sampled companies in the Jordanian industrial

sector. The study revealed that Jordanian medical companies

in the medical sector, adopted responsibility accounting

system in the evaluation of the performance of the managers.

Gharaibeh [21] conducted a research investigating the extent

of the application of accounting responsibility and its impact

on profitability and operational efficiency in the Jordanian

industrial corporations companies. The study employed

descriptive statistics and regression analysis. The study found

that the organizational structure of Jordanian industrial public

shareholding companies was divided into responsibility

centers with a high degree of application, but there was no

relationship between centers and profitability ratios and

proportions operational efficiency. The authorized managers

of responsibility centers with powers and the existence of

incentives are linked to the results of responsibility centers

and they linked to rates of profitability. The study

recommended increasing the attention to divide the

organizational structure to responsibility centers and identify

the goals which needed to be achieved by each center. Al-

Nimer and Warrad [6] examined whether liquidity through

quick ratio has any significant impact on Jordanian banks

profitability through return on asset (ROA). The study used


the 2005-2011 financial reports of 15 Jordanian banks listed

at Amman Stock Exchange (ASE). The study revealed that

there was a significant positive impact of the independent

variable quick ratio on the dependent variable of return on

asset (ROA). That means that return on assets (ROA) in

Jordanian banks was significantly influenced by liquidity.

Kingsley, Endurance, Sunny, and Ozele, [30] studied

responsibility accounting issues and the effect of transfer

pricing policy on the Nigerian economy. The study made a

detailed analysis on transfer pricing issues and found that

several activities of handling, planning and controlling were

engaged in multinational firms in Nigeria by reducing the

burden of corporate tax where responsibility accounting tool

is used for decentralization. Owolabi, and Obida, [44] studied

the relationship between liquidity management and corporate

profitability using return on investment (ROI), return on

equity (ROE) and return on assets (ROA) of selected

manufacturing companies listed on the Nigerian Stock

Exchange. The study found that liquidity management

measured in terms of the company’s credit policies, cash flow

management, and cash conversion cycle has a significant

impact on return on investment, (ROI), return on equity

(ROE) and return on assets (ROA. From the economy of Siri

Lanka. Niresh, and Velnampy [40] studied the effects of firm

size on the profitability of quoted manufacturing firms. The

study employed data obtained from 15 companies which

were active in the Colombo Stock Exchange between the

years 2008 to 2012 for the study. The study equally employed

some identified proxy variables to measure firm profitability

using return on assets (ROA) and net profit (NP) whereas

Total assets and Total Sales was utilized as indicators of firm

size. The study result revealed that there is no indicative

relationship between firm size and profitability of listed

manufacturing firms. Also that firm size has no profound

impact on the profitability of the listed manufacturing firms

in Sri Lanka. Rani and Rani [49] investigated the

implementation of responsibility accounting in the Jordanian

industrial companies listed on the Amman Stock Exchange. A

survey research design method was adopted, using 245

structured questionnaires. Descriptive and inferential

statistics were used to analyze the data with the help of the

Statistical package for social sciences (SPSS). The study

found that some of the elements of responsibility accounting

system were available in the Jordanian industrial companies

such as the existence of structural reporting and preparation

of budgets for performance evaluation. The study also

showed a lack of the right incentives system and did not find

any statistical evidence of performance comparison

evaluation with an actual and budgeted performance of the

companies.

Akenbor and Nkem [5] conducted an investigation on

responsibility accounting as a system of measuring the

performance of different segments being evaluated. For

attaining their goal, they developed research questions,

formulated hypothesis and reviewed related literature. As a

research instrument, they designed questionnaire. The

population had a sample of 32 accountants in Rivers State

from the manufacturing industry. Collected data were

analyzed using percentages and were tested using Chi-square

(x2) test. The study found no correlation with the variables;

as such that responsibility accounting is not at all suitable for

the segment performance on specific manufacturing firms.

The researcher suggested that to handle some of the

challenges facing responsibility accounting, adequate effort

would be needed by organizational executives to streamline

cost centers. The study suggested that effectiveness can be

achieved by developing market capitalization of those

companies, providing enough skilled manpower and ensuring

current data collection about cost, profit and investment

centers of the Nigerian companies. Makori and Jagongo [34].

conducted a study on whether environmental accounting

effects accurate information in the financial statements

regarding the estimated social cost occasioned by the

production externalities on the environment and how much

deliberate intervention cost had been incurred to bridge the

gap between the marginal social cost and the marginal private

cost by a firm. The study also aimed at establishing whether

there is any significant relationship between environmental

accounting and profitability of selected firms listed in India.

The data for the study were collected from annual reports and

accounts of 14 randomly selected quoted companies in the

Bombay Stock Exchange in India. The data were analyzed

using multiple regression models. The study found that there

was a negative significant relationship between

Environmental Accounting and Return on Capital Employed

(ROCE) and Earnings per Share (EPS) and a significant

positive relationship between Environmental Accounting and

Net Profit Margin and Dividend per Share. Based on this it

was recommended that government should give a tax credit

to organizations.

2.4. Justification for the Study

Fakir, Islam and Miah [18]; Machdar [32]; Rani and Rani

[49]; Pajrok [46] studies on responsibility accounting have

been inconclusive and controversial and no consensus has

been reached, especially the impact of responsibility

accounting on profitability. While some authors have

established positive relationships in their studies, others have

established negative or no relationship using shareholders’

wealth as a proxy for responsibility accounting and while

liquidity, return on investment; earnings per share and assets

replacement were used as a proxy for profitability. This

dissertation considers a shift on the research results of other

studies. Rani and Rani [49] established a positive relationship

while Pajrok [46] established a negative relationship using a

survey. However, while the above studies used survey

research design, this study would be based on a different

dimension. This study intended to employ profitability

identified proxies of return on assets (ROA), earnings per

share (EPS) and net profit before tax (NPBT) to examine

how they could be impacted by responsibility accounting of

the listed companies in Nigeria.

From the theoretical perspective, most theories seem not to

have considered human behavioral assumptions and the


structural mechanism paradigm shift of Agency theory like

the study of Goel Mazzola, Phan, Pieper, and Zachary [23].

This consideration is lacking in most studies conducted in

Nigeria, thereby creating a theoretical gap in the literature. In

filling these gaps, this study contributes to the literature in

agency theory based on the behavioral and attitudinal

paradigm shift of performance theory towards curbing

opportunistic behavioral tendencies of the managers in de-

centralized organizations. Eliwa, [17] noted that some basic

assumption of human nature is that there exists an association

between a human being, the environment and his behavior.

These assumptions underpin the study concept of

environmental peculiarities. Human beings and their

behavior are the product of their environment.

Consequently, this paper is significant as it would afford the

management of the listed companies in Nigeria, especially,

those operating a decentralized sub-unit to institute and adopt

responsibility accounting principles in order to increase

profitability and productivity in their operations. In addition,

management can use responsibility accounting as a control

mechanism to provide relevant information on a constant basis.

It will equally serve as a basis for motivating the managers and

the employees of various divisions and by so doing, enhance

their economic welfare.

3. Methodology

3.1. Research Design

This study empirically investigated the effect of

responsibility accounting on profitability in the listed

Nigerian companies. The study adopted ex-post facto

research design, the choice of ex-post facto research design is

premised on the ground that it examined the past event

relationship between the dependent and independent

variables. The population of this study consisted of all the

173 listed companies on the floor of the Nigeria Stock

Exchange (NSE) as of 31 December 2017 as contained in the

NSE Factbook, ten (10) companies are selected as the sample

representatives of this study. Convenience sampling

technique was used to select the sample representative for

this study based on time and data availability. The relevant

data needed for this study were from secondary data. The

secondary data extracted contained information from the

published annual reports and accounts of the companies

sampled for this study. Relevant information required to

proxy the research variables were extracted from the

statements profit and loss, statement of financial position

detailing assets and liabilities of companies, including a

statement of changes in equity and statement of cash flow for

the period covered by the study. To ensure the validity of this

study, the paper is presented to experts and made notable

corrections. Data extracted also was validated by same means.

The study established the effect between responsibility

accounting and profitability. The study therefore, examined a

cause and effect relationship between responsibility

accounting (independent variable) and profitability (the

dependent variable). To accomplish this, both descriptive and

inferential statistics were employed in the study. The data

analysis was carried out in two stages, i.e. descriptive and

inferential statistics. The descriptive statistics were used to

analyze the data for characteristics such as mean, median and

maximum, while the inferential statistics were used to test the

stated hypotheses. The panel regression models were also

estimated using Unobserved Effects Model (UEM), while

Hausman test was carried out to indicate the best estimation

between fixed effect model and random effect model

followed by other needed post estimation test.

3.2. Model Specification

Three natures of variables are used in this study; the

dependent variable, independent variable and the control

variable. The dependent variable is profitability measured as

net profit before tax (NPBT), earnings per share (EPS) and

return on assets (ROA); the independent variable is

responsibility accounting measured as cost of sales and

operational cost while firm size is used as the control variable.

The operationalization of the variables is thus:

Y=f (X)

Y=f (X, Z)

Where

Y=Dependent Variable=Profitability

X=Independent Variable=Responsibility Accounting

Z=Control Variable=Firm Size (FS)

Y=y1, y2, y3.

y1=Net Profit before Tax (NPBT)

y2=Earnings per Share (EPS)

y3=Return on Assets (ROA)

X=x1, x2

x1=Cost of Sales (COS)

x2=Operating Cost (OPC)

Z=z=Firm Size (FS)

Functional Relationship

y1=f(x1, x2); NPBT=f(COS, OPC) (1)

y1=f(x1, x2, z); NPBT=f(COS, OPC, FS) (2)

y2=f(x1, x2); EPS=f(COS, OPC) (3)

y2=f(x1, x2, z); EPS=f(COS, OPC, FS) (4)

y3=f(x1, x2); ROA=f(COS, OPC) (5)

y3=f(x1, x2, z); ROA=f(COS, OPC, FS) (6)

Models of the Study

Model (1)

NPBTit=β0 + β1COSit + β2OPCit +εit

Model (2)

NPBTit=β0 + β1COSit + β2OPCit + β4FSit + εit

Model (3)


EPSit=β0 + β1COSit + β2OPCit + εit

Model (4)

EPSit=β0 + β1COSit + β2OPCit + β4FSit + εit

Model (5)

ROAit=β0 + β1COSit + β2OPCit + εit

Model (6)

ROAit=β0 + β1COSit + β2OPCit + β4FSit + εit

Where

ROA=Return on Assets

EPS=Earnings per share

ROE=Return on equity

NPBT=Net Profit before Tax

COS=Cost of Sales

OPC=Operating Cost

FS=Firm Size

��=the regression intercept which is constant

��-β4=the coefficient of the explanatory variable

�=the error term of the model

�=number of firms

�=years of observations

4. Results and Discussion of Findings

Both descriptive and inferential statistics were employed

in the study. The data analysis was carried out in two stages,

i.e. descriptive and inferential statistics. The descriptive

statistics were used to analyze the data for characteristics

such as mean, median and maximum, while the inferential

statistics were used to test the stated hypotheses. The panel

regression models were also estimated using Unobserved

Effects Model (UEM), while Hausman test was carried out to

indicate the best estimation between fixed effect model and

random effect model followed by other needed post

estimation test

4.1. Pre-estimation Analysis

The basic statistical features of the financial figures and

ratios of the variables used in measuring the explanatory

variable, explained variable as well as the control variable are

explained in this section. Also, the multicolinearity analysis

carried out, testing for the existence of unhealthy association

among the explanatory variables, using multicolinearity

matrix, were as well presented in this section.

Table 1 Characteristics of the Variables.

Variables Mean Std. Dev. Min. Max.

NPBT 7578.63 19375.89 -34032.28 94056.00

EPS 144.71 244.43 -637.00 959.00

ROA 4.80 8.35 -18.04 32.56

COS 43077.13 83062.65 365.75 438853.00

OPC 57921.98 112311.10 525.08 558883.00

FS 9.85 2.38 6.46 15.47

Source: Researchers Work, 2019.

Interpretation

From table 1, the mean value of 4.8 for ROA is an

indication that 4.8 per cent returns were generated on the

average by the considered firms within the period of this

study via the usage of the total assets; while the firms

reported losses at some period leading to minimum return on

asset of -18.04 per cent, and the maximum return generated

from the use of total asset as reported from the output of the

analysis revealed 32.56 per cent. The standard deviation of

8.35 implies that risk is associated in predicting the rate of

return to be derived by firms from the use of total asset;

therefore, it is risky predicting the outcome of return from the

total asset base. Considering the standard deviation statistics

of every other variables other than that of firm size (FS); the

associated risk of prediction are very high especially that of

net profit before tax, cost of sales and operating cost having

standard deviations of 19375.89, 83062.65 and 112311.1.

possibly the huge standard deviation of these three variables

might be as a result of the units of measurements as they are

used in absolute form in millions of naira. Firms considered

in this study generated huge loss of 34,032.28 million within

the period covered as well as highest earnings before tax of

94, 056 million, while on the average; the firms reported

7,578.63 million as net profit before tax. The cost of sales

and the operating costs are highly volatile as the mean differs

widely from the minimum and the maximum value.

Averagely, the firms incurred 43,077.13 million and

57,921.98 million as cost of sales and operating cost which

was quite huge and requires attention for its reduction

through cost reduction and control techniques.

4.2. Multicolinearity Analysis

Multicolinearity test was conducted using correlation

matrix test and the result being presented i

Table 2 Mulricollinearity Test.

Variable COS OPC FS

COS 1.00

OPC 0.6838 1.00

FS 0.7493 0.7841 1.00

Source: Researchers Work (2019).

Interpretation

From table 2, the result of the correlation matrix having

the least absolute value of 0.6838 and the highest of 0.7841

evidenced that the explanatory variables are not multi-

correlated based on the proposition of Baltagi (2015) which

asserted that correlation coefficient should not exceed the

threshold limit of 0.75 for the independent variables to be

able to work together in a model, thus no problem of multi

colinearity among the measures of the explanatory variables.

4.3. Inferential Statics

Regression analysis was adopted to test the hypotheses

4.3.1. Test of Hypotheses One

Hypothesis One:


Research Objective: To ascertain the effect of

responsibility accounting on net profit before tax in listed


Research Question: To what extent does responsibility

accounting affect net profit before tax of listed companies in

Nigeria?

Research Hypothesis (Ho): Responsibility accounting has

no significant effect on net profit before tax of listed


Table 3 Test of Hypotheses One (without and with control variable).

MODEL ONE (without control variable) MODEL TWO (with control variable)

Pooled OLS regression with Cluster Errors Pooled OLS regression with Cluster Errors

Constant 2224.85 1204.33 1.85 0.068 -18399.6 6394.46 -2.88 0.005

Variable Coeff Std. Err t-test Prob Coeff Std. Err t-test Prob

COS -0.752 0.072 -10.45 0.00 -0.723 0.07 -10.10 0.00

OPC 0.652 0.053 12.25 0.00 0.581 0.055 10.51 0.00

FS - - - - 2315.6 706.27 3.28 0.001

Adj. R2; F-Stat (Prob) 0.6964; F(2, 97)=114.56 (0.00) 0.7242; F(3, 96)=87.63 (0.00)

Hausman Test chi2(2)=13.67 (0.00) chi2

(1)=0.30 (0.585)

Breusch and Pagan Lagrangian

multiplier test for random effects chi2

(1)=0.00 (1.00)

Testparm Test F(9, 79)=1.16 (0.33)

Heteroskedasticity Test chi2(1)=43.72 (0.00) chi2

(1)=69.80 (0.00)

Serial Auto-Correlation Test F(1, 9)=13.44 (0.01) F(1, 9)=11.81 (0.01)


Interpretation of the Statistical Tests’ Results

Hausman Test: from the statistical figures presented in

Table 3, the Hausman result for model One A showed that

fixed effect is more appropriate for the estimation judging

from its probability figure of 0.00 and based on its null

hypothesis which states that there is presence of unsystematic

difference in the model coefficients; therefore, the null

hypothesis was rejected because no unsystematic difference

in the model coefficients. However, the result of the Testparm

which was conducted to confirm the authenticity of Hausman

negates Hausman report with probability value greater than 5

per cent significance level (0.33), and thus favoured Pooled

OLS as the most appropriate estimator among fixed effect,

random effect and Pooled OLS. On the contrary, when Firm

Size (FS) was introduced as control variable, the result of the

Hausman changed to favoured Random Effect with

probability value greater than 5 per cent significance level

(0.585), while Breusch and Pagan Lagrangian multiplier test

for random effects having probability value of 1.00 being

greater than 5 per cent chosen significant level nullified the

result of Hausman and thus supported Pooled OLS as the

most appropriate estimator among fixed effect, random effect

and Pooled Ordinary Least Square Regression analysis.

Diagnostic Tests

The Breusch-Pagan/Cook-Weisberg Test for

heteroskedasticity for both models are significant (ρ=0.00;

0.00) indicating that the models are heteroskedastic, which

imply that the residuals of the models are not static over time

of the study; likewise, Wooldridge test for serial auto-

correlation in both models are significant (ρ-values of 0.01

and 0.01) revealing the presence of first order autocorrelation

among the series in both models respectively.

In accordance with the results of the post-estimation tests

carried out, both models are estimated using Pooled Ordinary

Least Square Regression with cluster errors as depicted in

table 3.

Model 1

NPBTit=β0+β1COSit + β2OPCit + εit

NPBTit=2224.85- 0.752COSit + 0.652OPCit + εit

Model 2

NPBTit=β0+β1COSit + β2OPCit + β3FSit + εit

NPBTit=-18400- 0.723COSit + 0.581OPCit + 2315.6FSit + εit

Interpretation

From the regression model 1a specified, it was found that

cost of sales (COS) and operational cost (OPC) significantly

affect net profit before tax (NBPT) of the listed companies in

Nigeria; while COS negatively influence NPBT, OPC exerted

positive effect. The coefficients of the cost of sales evidenced

that as cost of sales increases by N1m, NPBT would decline

by 0.752 million. On the contrary, as operational cost

increases by 0.652 million, judging from the result of the

combined effect of the independent variable on the dependent

variable, the probability of the F-statistics with ρ=0.00 less

than 0.05 level of significance adopted for this study revealed

that responsibility accounting measured as cost of sales and

operational cost significantly affect profitability measured as

net profit before tax (NPBT); the adjusted R-squared of 0.696

is an indication that the joint variation in the independent

variable would lead to 69.6 per cent changes in NPBT of

listed companies in Nigeria. Therefore, this study rejects the

null hypothesis one which states that responsibility

accounting has no significant effect on net profit before tax

(NPBT) while the study accepted the alternate hypothesis

that responsibility accounting has significant effect on net

profit before tax (NPBT) of listed companies in Nigeria.

With Control Variable:


With the introduction of firm size (FS) as control variable

to model 1a to form model 1b, it was noticed that cost of

sales (COS), operational cost (OPC) and firm size (FS)

significantly affect net profit before tax (NBPT) of the listed

companies in Nigeria; while COS negatively influence NPBT,

FS and OPC exerted positive effect with an increase of 0.581

million. The coefficients of the cost of sales evidenced that as

cost of sales increases by N1m, NPBT would decline by

0.723 million. On the contrary, as operational cost increases

by Judging from the result of the combined effect of the

independent variable on the dependent variable, the

probability of the F-statistics with ρ=0.00 less than 0.05 level

significance revealed that responsibility accounting measured

as cost of sales and operational cost significantly affect

profitability measured as net profit before tax (NPBT); the

adjusted R-squared of 0.696 is an indication that the joint

variation in the independent variable would lead to 69.6 per

cent changes in NPBT of listed companies in Nigeria.

Therefore, this study rejects the null hypothesis One which

states that responsibility accounting has no significant effect

on net profit before tax (NPBT) while the study accepted the

alternate hypothesis that responsibility accounting has

significant effect on net profit before tax (NPBT) of listed


Discussion of Findings

Interpreting the regression coefficients, the results clearly

shows that in the model without control variable; the

coefficient [coefficient=0.652; p-value=0.000] of Operating

Cost (OPC) is positive and statistically significant at 5%

level. The coefficient [coefficient=0.581; p-value=0.000] is

positive and statistically significant at 1% level with the

inclusion of control variables. This result aligns with the

study of [11] and that of [6], who had similar results in their

studies and asserted that operating cost positively and

significantly affect net profit before tax of listed companies.

Noticeably, the coefficient [coefficient=- 0.752; p-value=0.00]

of cost of sales (COS) is negative and highly statistically

significant in the models without control variables. The study

result as reported is in consistent with the study of [34]. The

coefficient [coefficient=- 0.723; p-value=0.000] is still

negative and significant with the inclusion of control

variables. Generally, the findings of this study is similar to

that of [48, 31] who concluded that responsibility accounting

significant influence net profit before tax of listed companies;

and found that responsibility accounting was used as a good

control system and performance evaluation tool in large

companies.

4.3.2. Test of Hypothesis Two

Research Objective: assess the effect of responsibility

accounting on earnings per share in listed companies in

Nigeria

Research Question: To what extent does responsibility

accounting affect the earnings per share of listed companies

in Nigeria?

Research Hypothesis (Ho): Responsibility accounting does

not significantly influence earnings per share of listed


Table 4. Test of Hypotheses Two (without and with control variable).

MODEL THREE (without control variable) MODEL FOUR (with control variable)

Pooled OLS regression with Cluster Errors Pooled OLS regression with Cluster Errors

Constant 133.24 27.73 4.81 0.00 -18399.6 6394.46 -2.88 0.005


COS 0.001 0.002 0.42 0.673 0.002 0.002 1.30 0.195

OPC -0.0003 0.001 -0.26 0.792 -0.002 0.001 -1.97 0.052

FS - - - - 67.72 15.69 4.32 0.00

Adj. R2; F-Stat (Prob) -0.0112; F(2, 97)=0.45 (0.64) 0.1442; F(3, 96)=6.56 (0.00)


(1)=0.17 (0.6833)



(1)=14.67 (0.00)

Testparm Test F(9, 79)=0.43 (0.92)


(1)=30.77 (0.00)


Cross-sectional Dependence -0.657 (0.51)



Hausman Test: the result of this test for model 2A

evidenced that fixed effect is more appropriate for the

estimation considering theρ-value of 0.00 which implies that

there is no unsystematic difference in the model coefficients.

contrarily, Testparm test was conducted to confirm the

authenticity of Hausman, the result negates Hausman report

with ρ-value of 0.92 which is greater than 5% chosen level of

significance and thus the result favoured Pooled OLS as the

most appropriate estimator among fixed effect, random effect

and Pooled OLS.

When Firm Size (FS) was introduced as control variable,

the result of the Hausman became insignificant and thus

favoured Random Effect with ρ-value of 0.6833 which is

greater than 5 per cent significance level (0.585), it is an

indication that there exist unsystematic difference in the

model coefficients. Breusch and Pagan Lagrangian multiplier

test for random effects conducted to confirm the result of the

Hausman test reported probability value of 0.00. This aligned

with the result of the Hausman test and therefore Random


Effect is adjudged the most appropriate estimator among

Fixed Effect, Random Effect and Pooled OLS.

Diagnostic Tests

The Breusch-Pagan/Cook-Weisberg Test for

heteroskedasticity for both models are significant (ρ=0.00;

0.00) indicating that the models have heteroskedasticity

problem, which imply that the residuals of the models are not

constant over time of the study. The result of the Wooldridge

test carried out to determine the issue of serial auto-

correlation in both models are significant (ρ-values of 0.00

and 0.00) revealing the residuals and the coefficients are

correlated in both models respectively. The Cross-sectional

dependence test carried out in Model 2b having insignificant

probability value of 0.51 showed that there is no cross

sectional dependence problem in the model.

With the results of the post-estimation tests carried out,

both models are estimated using Pooled Ordinary Least

Square Regression with cluster errors as depicted in table 4

Model 3

EPSit=β0+ β1COSit + β2OPCit + εit

EPSit=133.24+0.001COSit– 0.0003OPCit + εit

Model 4

EPSit=β0+ β1COSit + β2OPCit + β3FSit + εit

EPSit=-18399.6+0.002COSit- 0.002OPCit + 67.72FSit + εit

Interpretation

As depicted in the Model three of table 4, it was

discovered that cost of sales (COS) and operational cost

(OPC) insignificantly affect earnings per share (EPS) of the

listed companies in Nigeria. Cost of Sales (COS) has positive

effect on earnings per share with a co-efficient of 0.001

which shows that 1% increase in cost of sales will increase

earnings by 0.1%. the operating cost has negative coefficient

of 0.0003 on earnings per share. The Adjusted R2 of -0.0112

is an indication that the contribution of responsibility

accounting on earning per share is not present. The F-

statistics of 0.45 and the P-Value of 0.64 is an indication that

without the control variable, there is no significant effect of

responsibility accounting on earning per share. Hence the

null hypothesis was not rejected. With the introduction of

control variable of size, the cost of sales has positive effect

with earnings per share with a coefficient of 0.002 million

while operating cost with a negative coefficient with negative

coefficient of 0.002 shows that 1% increase in operating cost

will reduce earnings per share by 0.002 million naira the co-

efficient of size is 67.72 positive which shows that’s 1%

increase in size will result to 67.72 million increase in EPS,

then the R2 is 0.1442 which shows that responsibility

accounting is 14.42% in earning per share composition while

the remaining 85.58 is explained by variables outside the

model, probability of the F-statistics with ρ=0.6392 indicated

that responsibility accounting measured as cost of sales and

operational cost insignificantly affect profitability measured

as earnings per share (EPS).

Decision

Based on the insignificant result of the F-statistics with ρ-

value of 0.6392 which is greater than 5% significance level;

this study accepts the null hypothesis Three which states that

responsibility accounting has no significant effect on

earnings per share (EPS) and rejects the alternate hypothesis

that responsibility accounting has significant effect on

earnings per share (EPS) of listed companies in Nigeria.


With the inclusion of firm size (FS) as control variable in

model 4, it was observed that at 5% chosen significant level,

cost of sales (COS) and operational cost (OPC)

insignificantly affect earnings per share (EPS) while firm size

(FS) significantly affect EPS of the listed companies in

Nigeria. This implies that as the size of firm changes by a

unit, EPS of listed Nigerian companies increases by 67.72

kobo. The probability of the F-statistics with ρ=0.00

measuring the combined effect of cost of sales (COS),

operational cost (OPC) and firm size (FS) revealed that

responsibility accounting measured as cost of sales and

operational cost controlling for firm size significantly affect

earnings per share (EPS) of Nigerian listed companies; the

adjusted R-squared of 0.1442 is an indication that the joint

variation in the independent variable and control variable (FS)

would result to 14.42 per cent changes in EPS of listed


Decision

In accordance with the result of the F-statistics with

ρ=0.00, this study rejects the null hypothesis Three which

states that firm size does not significantly control the

relationship between responsibility accounting and earnings

per share (EPS) of listed companies in Nigeria while the

study accepted the alternate hypothesis which implies that

firm size significantly controlled the relationship between

responsibility accounting and earnings per share (EPS) of

listed companies in Nigeria.


The insignificant result obtained is consistent with the

study of Mojgan (2012). [35], but negates the findings of

Alshomaly (2013). [8]. possibly due to the differences in the

economies of two nations were the studies were conducted.

Overall, the results suggest the acceptance of the null

hypothesis, which states that there is no significant effect of

responsibility accounting on earnings per share in listed

companies in Nigeria. Although, when Firm size (FS) was

introduced as control variable, the impact of the relationship

changes, and made the result aligned with the findings

Adegbie, Olusanjo, and Olaoye (2018); Owolabi, and Obida

(2012). [3, 44] who found that responsibility accounting

variables have significant impact on earnings per share of

companies quoted on Nigerian Stock Exchange. It can be

deduced that larger firms have tendency of managing their

cost of sales and operational cost effectively thus

significantly impacting on their earnings per share.

4.3.3. Test of Hypothesis Three

Research Objective: determine the effect of responsibility


accounting on return on assets in listed companies in Nigeria

Research Question: How does responsibility accounting

affect return on assets of listed companies in Nigeria?

Research Hypothesis (Ho): Responsibility accounting has

no significant effect on return of assets of the listed


Table 5. Test of Hypotheses Three (without and with control variable).

MODEL FIVE (without control variable) MODEL SIX (with control variable)

Random EffectGeneralized Least Square regression

with Robust Errors Random EffectGeneralized Least Square regression

Constant 5.247 2.175 2.41 0.016 3.005 7.64 0.39 0.694


COS -0.00001 0.00 -1.15 0.251 -0.000 0.000 -0.16 0.874

OPC 0.000 0.000 0.51 0.61 -0.000 0.000 -0.05 0.957

FS - - - - 0.239 0.788 0.30 0.761

Adj. R2; F-Stat (Prob) 0.0089; Wald=1.54 (0.4641) 0.0399; Wald=1.08 (0.782)


(1)=1.37 (0.2415)



(1)=85.62 (0.00) chi2(1)=56.19 (0.00)


(1)=1.77 (0.1835)


Cross-sectional Dependence Test -0.786 (0.4318) -0.691 (0.4893)

Source: Researchers Work (2019)


From table 5 Hausman Test: the results of this test for both

model five and six with ρ-values of 0.9552 and 0.2415 which

is greater than 5% chosen level of significance supported the

appropriateness of random effect GLS regression. Also, the

results of the Breusch and Pagan Lagrangian multiplier test

for random effect with ρ-values of 0.00 and 0.00 for both

Models which is less than 5% chosen level of significance

was consistent with the outcome of the Hausman test; which

implies that there is unsystematic difference in the models’

coefficients. Therefore, Random Effect Generalized Least

Square regression analysis is adjudged the most appropriate

estimator among fixed effect, random effect and Pooled OLS

in estimating both Models Three A and B.

Diagnostic Tests

The result of The Breusch-Pagan/Cook-Weisberg Test for

heteroskedasticity for Model three A reflected that the model

is heteroskedastic (ρ=0.00) indicating that the model Three A

has heteroskedasticity problem, which imply that the

residuals of the models are not constant over time of the

study. On the contrary, with the inclusion if Firm Size (FS) as

control variable; the model did not exhibit the presence of

heteroskedasticity problem with ρ-value of 0.1835 which is

greater than the expected significance level. The result of the

Wooldridge test carried out to determine the issue of serial

auto-correlation in both models is significant (ρ-values of

0.0941 and 0.0925) proved that the residuals and the

coefficients are correlated in both models respectively. The

Cross sectional dependence test carried out on Model 3a and

3b having insignificant probability values of 0.4318 and

0.4893 showed that there is no cross sectional dependence

problem in the models.

With the results of the post-estimation tests carried out,

model 5 was estimated using Random Effect Generalized

Least Square regression with Robust Errors while model 6

was estimated using Random Effect Generalized Least

Square regression method as depicted in table 5.

Model 5

ROAit=β0+ β1COSit + β2OPCit + εit

ROAit=5.247 - 0.001COSit+ 0.0001OPCit + εit

Model 6

ROAit=β0+ β1COSit + β2OPCit + β3FSit + εit

ROAit=3.005 - 0.000COSit- 0.000OPCit + 0.239FSit + εit

Interpretation

As depicted in the five, it was discovered that cost of sales

(COS) and operational cost (OPC) insignificantly affect

return on asset (ROA) of the listed companies in Nigeria. The

probability of the Random Effect Wald chi2

(2) with ρ-value of

0.4641 indicated that responsibility accounting measured as

cost of sales and operational cost insignificantly affect

profitability measured as return on asset (ROA) of the listed

companies in Nigeria

Table 5 without the control variable shows that cost of

sales has negative effect of 0.00001 which indicate that 1%

increase in cost of sales has insignificant negative effect of

0.00001 million naira on return on asset while operating cost

has no effect of 0.0000 shows that 1% increase in operating

cost has no effect on responsibility accounting.

The Adj R2 reflect 0.0089 which shows that the

composition of responsibility accounting in ROA is 0.89%

while the balance of 91.11% is represented by factors not

captured in this model.

Decision

Based on the insignificant result of the Random Effect

Wald chi2

(2) with ρ-value of 0.4641 which is greater than 5%

significance level; this study accepts the null hypothesis Five

which states that responsibility accounting has no significant

effect on return on asset (ROA) of the listed companies in

Nigeria and rejects the alternate hypothesis that responsibility

accounting has significant effect on return on asset (ROA) of

the listed companies in Nigeria.



When firm size (FS) as control variable in model 5 to form

model 6, it was observed that at 5% chosen significant level,

cost of sales (COS) and operational cost (OPC)

insignificantly affect return on asset (ROA) while firm size

(FS) exerted significant positive effect on ROA of the listed

companies in Nigeria. This implies that as the size of firm

changes by a unit, ROA of listed companies in Nigeria would

increase by 23.9%. The probability of the Random Effect

Wald chi2

(3) with ρ-value of 0.782 which is greater than 5%

significance level, also, the Adjusted R2 is 0.0399 which

shows that the composition of responsibility accounting is

3.99% while the balance of 96.01% is represented by factors

outside the model. This study accepts the null hypothesis Six

which states the relationship between responsibility

accounting and return on asset is significantly controlled by

the firm size of listed companies in Nigeria. In view of the F-

statistics of 1.08 and P-value of 7.82<0.05 level of

significance adopted for this study


The insignificant effect of cost of sales on return on asset

obtained in this study negates the reports of Nyakuwanika et

al [41]. Also with the results found by the studies of Owolabi

and Obida [44]; Muneer et al [36] and Abebe and Abera [1],

however supported the findings of Niresh and Velnampy [40]

possible because of the variables nature of data used in both

studies.

The negative finding of the effect of operating cost on

return on asset is consistent with the negative result obtained

in the study of Moigan [35]. However, all the results

suggested the acceptance of the null hypothesis of no

significance effect of responsibility accounting on return on

assets in listed companies in Nigeria and concluded that there

is no significant effect of responsibility accounting on return

on assets in listed companies in Nigeria. This aligned with

the report of Amutari [7] who found that responsibility

accounting has significant effect on the profitability of the

Kuwaiti oil companies and contradicts the findings of

Akenbor and Nkem [5] and Nawaiseh er al [37].

4.4. Implications of Findings

Following the analysis, result and interpretation and the

findings, this study could be beneficial to managers, investors,

market analyst, policymakers, auditors, and the academia are

concerned with quality of accounting information for

decision making and economic values of responsibility

accounting.

Top Management Staff: Since this study revealed that

responsibility accounting significantly impacted on

profitability, the managers should understand responsibility

accounting properly, implement organizational strategies and

insist on quality decisions by delegating authorities, to

motivate unit centers to improve productivity and

profitability. The strategic managers should insist on

continuous improvements, stretch targets, restructure and re-

engineer and encourage autonomous work team towards

achieving the organization profitability objective.

To Analysts and Capital Market Participants: The

implications of this result suggest that the analysts and other

equity market participants may find this information useful in

making investment projections and improve financial market

participation and investment choice in portfolio

diversification and investment selections, since the study

revealed that profitability is influenced by responsibility

accounting.

To Investors: The findings of the study will be useful to

investors when setting investment portfolio priorities in the

midst of uncertainty and volatilities in the investment

decisions, profitability is a major factor when investors want

to make investment decisions.

To Financial Regulators: Financial regulators such as

Securities and Exchange Commission (SEC), Central Bank

of Nigeria (CBN) and Financial Reporting Council of Nigeria

(FRCN), will find this study to be useful to them when

formulating accounting and financial standards, principles

and guidelines in implementing responsibility accounting,

performance appraisal and measuring components towards

improving profitability in Nigerian companies desiring to

implement responsibility accounting.

To Policy Markers: This study will be useful for policy

makers, especially in readiness for economic policy

formulation and possible defense mechanisms for a more

stable investment environment using the significant effects of

some of the firm’s characteristics and responsibility

accounting proxies employed in this study.

To Scholars and Researchers: This study also will be

useful to scholars and the academia who are interested in

research on responsibility accounting and profitability,

thereby increasing the research data pool for further research

work.

5. Conclusion

This study investigated the effect of responsibility

accounting on profitability. It also established the controlling

effects of firm size on the relationship between responsibility

accounting and profitability. Responsibility accounting is

proxy by cost of sales and operating cost, while profitability

is proxy by net profit before tax, earnings per share and

return on asset. The study concluded that responsibility

accounting, controlling for firm size significantly affect

profitability of listed companies in Nigeria.

6. Recommendations

Based on the findings and conclusion of this study, the

following recommendations are useful to the managers,

management as a whole, investors, market analysts, and

policy makers:

i. Managers should boost their asset base as this is shown

in the findings that firm with larger asset base were

able to control their cost of sales and operational cost

thus significantly influence their profitability level. It is

reflected in this result that cost of sales negatively


affect net profit before tax, hence, mangers should

strive to take advantage of quantity discount thus

reducing the cost of sales especially for inventories

whish are not perishable in nature.

ii. The investors should critically and objectively study

and understand the dynamics of responsibility

accounting, the reported performances of companies

implementing responsibility accounting and ensure

that performance measures are established in the

companies which they intend to invest for those

companies implementing responsibility accounting

and, that performance is measured while individuals

are properly rewarded for good performance. This

will guide investors and other capital market

participants in making informed investment decisions

and portfolios diversifications strategies particularly

in time of investment uncertainties. Therefore

investors and should pay more attention to the

earnings consistency trend of the unit centers of the

sampled companies.

iii. The management of listed companies should

implement responsibility accounting and place

emphasis on profitability in a profit center in order to

satisfy the shareholders objective of wealth

maximization

iv. Securities and Exchange Commission on Nigeria

should enforce the management of listed companies to

introduce financial strategy of implementing the

measure of efficiency, effectiveness and economy so

that responsibility accounting will work for them

v. The management of listed companies should use

earnings per share as an annual measure to assess and

appraise the sustainability of responsibility accounting

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Documents

Responsibility Accounting and Profitability of Listed